Breakout or breakdown

GDX is fast approaching a point where it will either break up or break down hard. This is because gold is at the cusp of completing an important pattern. Here is the chart for GLD:

GLD (and gold) has nearly completed a symmetrical triangle. According to Elliott Wave Theory, the triangle should consist of five waves. The blue lines show that it has completed five waves. This should mean a break downward at any moment. This does not mean it will break down, but a break is likely soon, either up or down, and a fast move should follow. Since this is a triangle, and a triangle is often the last consolidation in an up or down move, it should turn up fairly quickly after a breakdown scares everyone. This fits in perfectly with last week's post showing a possible 5th wave due in GDX.
Here is GDX:

As of Friday, GDX closed just below resistance as shown by the blue line. If GDX breaks above this line it is a buy, but you can see by the blue arrows that this type of buy has failed twice in the last five months. A failure is likely again if the gold triangle breaks down. If gold breaks up this line would be a good buy, so buying with a stop below the blue line is a good idea.

A line in the sand

First a disclaimer. I am neither bullish nor bearish on the gold market in the short term. I'd be very happy if a new bull move has started, but I want to be safe if it has not. This post is to present the evidence for both views.

There is a lot of commentary lately about how the correction in the gold market is over and a new bullish move is about to begin. A three month chart of gdx seems to support this view.

There is what looks like a clearly bullish flag on the chart above (shown in black), but there are two caveats. 
First, the flag should have broken out a couple days ago, but instead it fell and violated the support of its first leg down. It can still break up and out and that is what I would prefer.
Second, a bullish flag should be preceded by five clear waves up and there is no way I can find five waves up in this chart. (up waves as I see them in blue)
This next chart is a twelve month chart of gdx which gives a larger perspective.

Starting at the top of the chart, I have drawn five black down waves, followed by three red up waves, followed by five more black down waves that end at the low of 49.22. The 49.22 occurred at the end of December 2011, and in January, the same general pattern as we have now had formed. There were a lot of people calling the bottom at that time as well and the evidence was good. We had a perfect five - three - five pattern creating a large bullish flag. This soon broke down and we had a major wave down to a new low of 39.08. As you can see by the blue lines, GDX has now formed a very large four wave down pattern. The last blue line, which ends with an arrow, shows that the fifth wave has not been completed.
The title of this post is "A line in the sand" and the GDX price of 49.22 is that line. In a five wave pattern, the fourth wave should never overlap the first wave. The first wave down ended at 49.22. So far, the fourth wave has stopped at 48.72. If the bullish flag on the three month chart can break up and over 49.22 with strength, the correction is likely over. If it does it weakly and falls back or fails to exceed 49.22 at all another down wave is possible. To qualify as a fifth wave it merely has to go down to 39.07 and turn, but much lower is possible. A good Fibonacci target is 36.90, but anything is possible.
I think a fifth wave would scare enough people to produce a dramatic high volume reversal and put an end to the correction.
The next chart of the QQQ etf shows another problem:

This chart and the chart for SPY, which generally matches this one, shows that the general market has gone down in five waves (in black) and up in three. (in red) It could still be working on the third leg up, but five waves down, and three waves up imply another five waves down to new lows. If the general market goes down hard again it could pull the gold stocks down with it. This is not always true, but it does happen quite often.
My conclusion is: Don't blindly listen to the consensus, be ready for anything.